Is the BlueBet (ASX:BBT) share price a serious bargain after losing 23% in a month? Here's what Motley Fool analyst Trevor Muchedzi says

Is BlueBet worth looking into? Here's what this expert thinks…

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The BlueBet Holdings Ltd (ASX: BBT) share price has had a shocking month on the ASX despite the company's silence. But does the 23% tumble put it squarely in the buy zone?

The Motley Fool Australia analyst Trevor Muchedzi sat down with our chief investment officer Scott Phillips last week to talk about the betting services company's outlook.

Those interested can find their entire conversation here or keep reading for a breakdown of their major talking points.

Additionally, Phillips chats with one of our analysts weekly, publishing their conversations on The Motley Fool Australia's YouTube channel every Wednesday.

At the time of writing, the BlueBet share price is up 7.78% for the day at $1.45.

The strength of the BlueBet share price

BlueBet is a small betting company within the Australian market. According to the ASX, it has a market capitalistion of around $270 million.

Muchedzi also notes it holds a market share of around 1.3%. But what's got the analyst excited about the company is its international expansion plans.

The company has begun its break into the United States' relatively new gambling market, with a unique approach to doing so.

Las Vegas has always been a gambling hot spot. However, the United States didn't legalise sports betting in all states until 2018. Muchedzi comments:

It's not often where we see Australian companies having an edge over US companies, especially in their home market, but because we've been in the sports betting industry for far longer than US companies we do have Australian companies that have got an edge in that particular market.

However, the US doesn't allow betting across state lines. That means a betting company needs to be separately licensed in every US state they operate in.

While many betting companies are jumping in to take a share of the US' larger markets, BlueBet is targeting what Muchedzi calls second-tier markets. These are smaller markets with less competition. Muchedzi states:

You've got traditional gambling companies that are operating in those markets and, for the last 50 or 100 years, these were brick and mortar type of gambling companies.

What BlueBet is wanting to do is to go into those markets and then partner with those gambling companies that already have got licenses to provide sports betting…

[It plans to] provide the technology behind online sports betting.

According to Muchedzi, that tech is hard for traditional gambling companies to get their hands on.

The way-around posed by BlueBet has another benefit too. It allows the company a slice of the market without paying for customer acquisition.

However, BlueBet still faces numerous challenges.

BlueBet's weaknesses

Muchedzi noted a number of factors that might negatively impact the BlueBet share price in the future.

Firstly, the company is still small. While it has a history of execution in Australia, the US is a different kettle of fish.

Secondly, it's operating in a highly regulated environment. The gambling sector – particularly that of the US – comes with many risks, one being potential litigation. Muchedzi states:

If they're involved in any form of litigation, that will … result in in some significant costs for BlueBet, and for all their partners.

Finally, the US market brings an immense amount of competition. However, it's also extremely localised.

Right now, BlueBet has failed to secure a partnership in one of its targeted states. Though, it's wiggled its way into another.

It is now looking to break into its 3 remaining target states, but the company doesn't have a lot of control over its ability to enter individual states, potentially making its execution plan risky.

So, all that considered, is BlueBet a buy?

Here's what Muchedzi had to say about the Bluebet share price:

The investment story is very simple. The US market is, really, a new market and it's enormous. It's expected to really grow to something like between $20 to $30 billion dollars in terms of revenue over the next three years…

Also, I really like their sportsbook-as-a-service offering. It's really like a software type of business model where they don't have to invest significantly in terms of customer acquisition…

If they get it right, if they get into these transactions, they are really, really compelling, so it's an investment opportunity that I think is worth looking into…

[But] we have to pay attention to the risks… [L]et's see how they're executing over the next few quarters.

The opinions expressed in this article were as at 1 December 2021 and may change over time.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BlueBet Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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